SEC Company Response from GENERAL ELECTRIC CAPITAL SERVICES — Dec 9, 2005
GENERAL ELECTRIC CAPITAL SERVICES INC/CT (CIK 0000797463)
Date: Dec. 9, 2005 · CIK: 0000797463 · Accession: 0000040554-05-000148
AI Filing Summary & Sentiment
Referenced dates: November 16, 2005
Letter
United States Securities and Exchange Commission Re: General Electric Capital Services, Inc. Form 10-K/A for Fiscal Year Ended December 31, 2004 Filed May 6, 2005 File No. 0-14804
Dear Mr. Cline:
We are responding to your comment letter dated November 16, 2005, to James A. Parke, Chief Financial Officer of General Electric Capital Services, Inc. (“GECS”) relating to the above documents. For ease of reference, we have repeated the Staff’s comments in bold text preceding each response.
December 31, 2004 Form 10-K/A
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 16
1.
We note financing receivables increased 14% from 2003 to 2004 while your allowance for losses decreased 10% during the same period. Please revise to discuss the reasons for the decrease in your allowance specifically identifying significant trends and other internal and external factors which impacted your allowance and related provision for losses on financing receivables.
Response
In future filings we will include a discussion identifying relevant trends and other factors that affect our allowance and related provision for losses on financing receivables.
We supplementally advise the Staff that our consolidated allowance for losses as a percentage of financing receivables decreased from 2.46% to 1.96% in 2004 as a result of the following:
·
basis points as a result of standardization of our global write-off policy for delinquent, fully-reserved amounts in our Consumer Finance portfolio, reducing both the gross receivable and the reserve.
·
basis points as a result of acquiring the $17.2 billion portfolios of AFIG and WMC, secured loans with losses much lower than the average in our portfolio.
·
basis points as a result of industry-wide credit improvement during the year.
December 9, 2005
Page
Mr. Paul Cline
Senior Accountant
Investment Securities, page 28
2.
We note your disclosure that of the available-for-sale securities with unrealized losses at December 31, 2004, approximately $0.1 billion was at risk of being charged to earnings in the next 12 months. We also note your disclosure that you regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, your intent and ability to hold to recovery and the financial health of and specific prospects for the issuer. Please revise to disclose the specific criteria that a security must meet to be considered at risk of being charged to earnings in the next 12 months and the specific criteria that a security must meet to be charged to earnings.
Response
We regularly review investment securities for impairment in accordance with our impairment policy, which includes both quantitative and qualitative criteria. Quantitative criteria include length of time and amount that each security is in an unrealized loss position, and for fixed maturities, whether the issuer is in compliance with terms and covenants of the security. Our qualitative criteria include the financial strength and specific prospects for the issuer as well as our intent and ability to hold the security to maturity or until forecasted recovery. Our impairment reviews involve our finance, risk and asset management teams, as well as the portfolio management and research capabilities of our internal and third party asset managers, as required. Our qualitative review attempts to identify those issuers with a greater than 50% chance of default in the coming twelve months. These securities are characterized as “at-risk” of impairment.
In future filings we will revise our disclosure as provided above.
Consolidated Financial Statements, page 43
General
3.
Please revise to disclose the impact that recently issued accounting standards will have on your financial statements when adopted in a future period. Refer to SAB Topic 11:M.
Response
There were no issued accounting standards at December 31, 2004, that we had not adopted that would have had a material effect on future financial statements.
Sales of Subsidiary Stock
4.
Please revise to present gains and losses from your sale of Genworth and Gecis subsidiary stock as a separate line item in your statement of earnings. Refer to Question 6 of SAB Topic 5:H.
Response
SAB Topic 5:H applies to issuances of stock by subsidiaries that received and retained the proceeds. Separate reporting of gains and losses of our sales of Genworth and Gecis shares under that guidance would not be required because the transactions in question were our direct sales of our owned shares. We registered and sold Genworth shares in the public market; we sold our Gecis shares to a financial investor.
December 9, 2005
Page 3
Mr. Paul Cline
Senior Accountant
5.
Please revise your footnotes to disclose your accounting method for issuances of a subsidiary’s stock including how gains and losses are determined. Refer to Question 6 of SAB Topic 5:H.
Response
We will include disclosure along the following lines in our Summary of Significant Accounting Policies in future filings:
“Sales of Stock by Affiliates
We record gains or losses on sales by an affiliate of its own shares as revenue unless realization of gains is not reasonably assured, in which case we record the results in shareowner’s equity.”
6.
Please revise your footnotes to describe your issuances of a subsidiary’s stock during all periods presented. The footnote should clearly describe the transaction and disclose:
·
the subsidiary and nature of operations;
·
the number of shares issued;
·
the price per share, the total dollar amount and nature of consideration received;
·
the percentage of ownership before and after the transaction; and
·
whether deferred income taxes have been provided on gains recognized and, if no provision has been recorded, a clear explanation of the reasons.
Refer to Question 6 of SAB Topic 5:H.
Response
We will provide the requested disclosures in future filings.
7.
We note you recorded a loss on the sale of shares of Genworth Financial, Inc. Please revise to disclose how you considered the guidance in SAB Topic 5:H and SFAS 144 in determining whether your remaining investment in the subsidiary was impaired.
Response
We supplementally advise the Staff that we assessed the potential for impairment of our remaining interest in Genworth at the time of the direct sale of our owned shares (“the sale”) and concluded that our remaining investment was not impaired. Our reasonable expectation was that the market would react favorably following the IPO as investors became familiar with Genworth Financial, Inc. We maintained control over the timing of any future Genworth share sales. While we intended to reduce our ownership to less than 50% over the ensuing two years, we were not, then or now, obligated to sell any of our remaining shares. The nature and extent of our further sales was subject to future market conditions. During the period we were holding the remaining Genworth shares, they were generating substantial earnings that were more than sufficient to recover our investment.
December 9, 2005
Page 4
Mr. Paul Cline
Senior Accountant
We also believe that any impairment risk at the initial sale date became irrelevant as our expectations were fulfilled and the price of Genworth shares increased (up 20%, 22% and 41% over the initial sale price at the ends of the second, third and fourth quarters of 2004, respectively). Within thirty days of the initial sale, Genworth’s share price exceeded the basis of our remaining interest. That subsequent price increase indicates clearly that no material risk or uncertainty existed as of those dates that would warrant MD&A disclosure.
Related Party Transactions
8.
We note your disclosures of receivables (pg. 31) and borrowings (pg. 68) with your parent. Please revise to disclose all related party transactions on the face of your balance sheet, income statement and statement of cash flows and disclose all material related party transaction in your footnotes. Refer to Rule 4-08(k) of Regulation S-X and SFAS 57.
Response
In future filings we will disclose material related party transactions.
Acquisitions
9.
Please revise to disclose the information required by paragraphs 51-57 of SFAS 141 related to your acquisitions.
Response
We supplementally advise the Staff that there were no acquisitions in 2004 or that required SFAS 141 disclosures, individually or in the aggregate. In both years we did voluntarily disclose in management’s discussion and analysis the consequences of these acquisitions on important trends.
Preferred Stock
10.
We note your disclosure on page 36 which refers to redemption of certain preferred stock. Please revise to disclose the amount of and redemption requirements for all issues of capital stock that are redeemable at fixed or determinable prices on fixed or determinable dates in each of the five years following the date of the latest statement of financial position presented. Refer to SFAS 129.
Response
We did not have preferred stock that is redeemable at fixed or determinable prices on fixed or determinable dates within the next five years. For all preferred stock that specified redemption on fixed or determinable dates, the dates were 2012 or later. Accordingly, we did not have any instruments subject to the disclosure requirements of SFAS 129. Please see response to question 11 below.
11.
Please revise to disclose how you consider the guidance of SFAS 150 in determining the classification and measurement of your preferred stock.
December 9, 2005
Page 5
Mr. Paul Cline
Senior Accountant
Response
We supplementally advise the Staff that approximately $140 million of our outstanding preferred stock met the definition of a liability and was reclassified to liabilities upon adoption of SFAS 150 in July 2003. In future filings we will modify our disclosure in the Minority Interest footnote along the following lines (additions underscored):
“Minority interest in equity of consolidated affiliates includes common shares in consolidated affiliates and preferred stock issued by GE Capital and by affiliates of GE Capital. Preferred shares that we are required to redeem at a specified or determinable date are classified as liabilities.”
Note 1. Summary of Significant Accounting Policies
General
12.
Please revise to disclose your accounting policy related to your advances to associated companies.
Response
We propose to include disclosure along the following lines as part of our Summary of Significant Accounting Policies in future filings:
“Other Receivables
The carrying amounts for certain receivables reported as “Other Receivables” (comprising nonfinancing customer receivables, accrued investment income, amounts due from GE, amounts due under operating leases, receivables due on sale of securities and various sundry items) as well as advances to associated companies reported as “Other Assets” are net of an allowance for losses that represents our best estimate of probable losses inherent in such assets. Advances to associated companies are also adjusted to record losses that exceed our related investments.”
Revenues from Services (Earned Income), page 50
13.
Please revise to disclose how you consider the following when i
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CORRESP
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filename1.htm
GECS Comment Letter December 9 2005
Philip
D. Ameen
Senior
Vice President and Controller
General
Electric Capital Services, Inc.
3135
Easton Turnpike
Fairfield,
CT 06828
USA
T
203 373 2458
F
203 373 3005
pameen@ge.com
Via
FedEx and EDGAR
December
9, 2005
Mr.
Paul Cline
Senior
Accountant
United
States Securities and Exchange Commission
450
Fifth Street, N.W.
Washington,
D.C. 20549
Re:
General
Electric Capital Services, Inc.
Form
10-K/A for Fiscal Year Ended December 31, 2004
Filed
May 6, 2005
File
No. 0-14804
Dear
Mr. Cline:
We
are responding to your comment letter dated November 16, 2005, to James A.
Parke, Chief Financial Officer of General Electric Capital Services, Inc.
(“GECS”) relating to the above documents. For ease of reference, we have
repeated the Staff’s comments in bold text preceding each response.
December
31, 2004 Form 10-K/A
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 16
1.
We
note financing receivables increased 14% from 2003 to 2004 while
your
allowance for losses decreased 10% during the same period. Please
revise
to discuss the reasons for the decrease in your allowance specifically
identifying significant trends and other internal and external factors
which impacted your allowance and related provision for losses on
financing receivables.
Response
In
future filings we will include a discussion identifying relevant trends and
other factors that affect our allowance and related provision for losses on
financing receivables.
We
supplementally advise the Staff that our consolidated allowance for losses
as a
percentage of financing receivables decreased from 2.46% to 1.96% in 2004 as
a
result of the following:
·
33
basis points as a result of standardization of our global write-off
policy
for delinquent, fully-reserved amounts in our Consumer Finance portfolio,
reducing both the gross receivable and the
reserve.
·
12
basis points as a result of acquiring the $17.2 billion portfolios
of AFIG
and WMC, secured loans with losses much lower than the average in
our
portfolio.
·
5
basis points as a result of industry-wide credit improvement during
the
year.
December
9, 2005
Page
2
Mr.
Paul Cline
Senior
Accountant
Investment
Securities, page 28
2.
We
note your disclosure that of the available-for-sale securities with
unrealized losses at December 31, 2004, approximately $0.1 billion
was at
risk of being charged to earnings in the next 12 months. We also
note your
disclosure that you regularly review investment securities for impairment
based on criteria that include the extent to which cost exceeds market
value, the duration of that market decline, your intent and ability
to
hold to recovery and the financial health of and specific prospects
for
the issuer. Please revise to disclose the specific criteria that
a
security must meet to be considered at
risk
of being charged to earnings in the next 12 months and the specific
criteria that a security must meet to be charged to
earnings.
Response
We
regularly review investment securities for impairment in accordance with our
impairment policy, which includes both quantitative and qualitative criteria.
Quantitative criteria include length of time and amount that each security
is in
an unrealized loss position, and for fixed maturities, whether the issuer is
in
compliance with terms and covenants of the security. Our qualitative criteria
include the financial strength and specific prospects for the issuer as well
as
our intent and ability to hold the security to maturity or until forecasted
recovery. Our impairment reviews involve our finance, risk and asset management
teams, as well as the portfolio management and research capabilities of our
internal and third party asset managers, as required. Our qualitative review
attempts to identify those issuers with a greater than 50% chance of default
in
the coming twelve months. These securities are characterized as “at-risk” of
impairment.
In
future filings we will revise our disclosure as provided above.
Consolidated
Financial Statements, page 43
General
3.
Please
revise to disclose the impact that recently issued accounting standards
will have on your financial statements when adopted in a future period.
Refer to SAB
Topic 11:M.
Response
There
were no issued accounting standards at December 31, 2004, that we had not
adopted that would have had a material effect on future financial
statements.
Sales
of Subsidiary Stock
4.
Please
revise to present gains and losses from your sale of Genworth and
Gecis
subsidiary stock as a separate line item in your statement of earnings.
Refer to Question 6 of SAB Topic
5:H.
Response
SAB
Topic 5:H applies to issuances of stock by subsidiaries that received and
retained the proceeds. Separate reporting of gains and losses of our sales
of
Genworth and Gecis shares under that guidance would not be required because
the
transactions in question were our direct sales of our owned shares. We
registered and sold Genworth shares in the public market; we sold our Gecis
shares to a financial investor.
December
9, 2005
Page 3
Mr.
Paul Cline
Senior
Accountant
5.
Please
revise your footnotes to disclose your accounting method for issuances
of
a subsidiary’s stock including how gains and losses are determined. Refer
to Question 6 of SAB Topic
5:H.
Response
We
will include disclosure along the following lines in our Summary of Significant
Accounting Policies in future filings:
“Sales
of Stock by Affiliates
We
record gains or losses on sales by an affiliate of its own shares as revenue
unless realization of gains is not reasonably assured, in which case we record
the results in shareowner’s equity.”
6.
Please
revise your footnotes to describe your issuances of a subsidiary’s stock
during all periods presented. The footnote should clearly describe
the
transaction and disclose:
·
the
subsidiary and nature of
operations;
·
the
number of shares issued;
·
the
price per share, the total dollar amount and nature of consideration
received;
·
the
percentage of ownership before and after the transaction;
and
·
whether
deferred income taxes have been provided on gains recognized and,
if no
provision has been recorded, a clear explanation of the
reasons.
Refer
to Question 6 of SAB Topic
5:H.
Response
We
will provide the requested disclosures in future filings.
7.
We
note you recorded a loss on the sale of shares of Genworth Financial,
Inc.
Please revise to disclose how you considered the guidance in SAB
Topic 5:H
and SFAS 144 in determining whether your remaining investment in
the
subsidiary was impaired.
Response
We
supplementally advise the Staff that we assessed the potential for impairment
of
our remaining interest in Genworth at the time of the direct sale of our owned
shares (“the sale”) and concluded that our remaining investment was not
impaired. Our reasonable expectation was that the market would react favorably
following the IPO as investors became familiar with Genworth Financial, Inc.
We
maintained control over the timing of any future Genworth share sales. While
we
intended to reduce our ownership to less than 50% over the ensuing two years,
we
were not, then or now, obligated to sell any of our remaining shares. The nature
and extent of our further sales was subject to future market conditions. During
the period we were holding the remaining Genworth shares, they were generating
substantial earnings that were more than sufficient to recover our investment.
December
9, 2005
Page 4
Mr.
Paul Cline
Senior
Accountant
We
also believe that any impairment risk at the initial sale date became irrelevant
as our expectations were fulfilled and the price of Genworth shares increased
(up 20%, 22% and 41% over the initial sale price at the ends of the second,
third and fourth quarters of 2004, respectively). Within thirty days of the
initial sale, Genworth’s share price exceeded the basis of our remaining
interest. That subsequent price increase indicates clearly that no material
risk
or uncertainty existed as of those dates that would warrant MD&A disclosure.
Related
Party Transactions
8.
We
note your disclosures of receivables (pg. 31) and borrowings (pg.
68) with
your parent. Please revise to disclose all related party transactions
on
the face of your balance sheet, income statement and statement of
cash
flows and disclose all material related party transaction in your
footnotes. Refer to Rule 4-08(k) of Regulation S-X and SFAS
57.
Response
In
future filings we will disclose material related party
transactions.
Acquisitions
9.
Please
revise to disclose the information required by paragraphs 51-57 of
SFAS
141 related to your
acquisitions.
Response
We
supplementally advise the Staff that there were no acquisitions in 2004 or
2003
that required SFAS 141 disclosures, individually or in the aggregate. In both
years we did voluntarily disclose in management’s discussion and analysis the
consequences of these acquisitions on important trends.
Preferred
Stock
10.
We
note your disclosure on page 36 which refers to redemption of certain
preferred stock. Please revise to disclose the amount of and redemption
requirements for all issues of capital stock that are redeemable
at fixed
or determinable prices on fixed or determinable dates in each of
the five
years following the date of the latest statement of financial position
presented. Refer to SFAS
129.
Response
We
did not have preferred stock that is redeemable at fixed or determinable prices
on fixed or determinable dates within the next five years. For all preferred
stock that specified redemption on fixed or determinable dates, the dates were
2012 or later. Accordingly, we did not have any instruments subject to the
disclosure requirements of SFAS 129. Please see response to question 11 below.
11.
Please
revise to disclose how you consider the guidance of SFAS 150 in
determining the classification and measurement of your preferred
stock.
December
9, 2005
Page 5
Mr.
Paul Cline
Senior
Accountant
Response
We
supplementally advise the Staff that approximately $140 million of our
outstanding preferred stock met the definition of a liability and was
reclassified to liabilities upon adoption of SFAS 150 in July 2003. In future
filings we will modify our disclosure in the Minority Interest footnote along
the following lines (additions underscored):
“Minority
interest in equity of consolidated affiliates includes common shares in
consolidated affiliates and preferred stock issued by GE Capital and by
affiliates of GE Capital. Preferred
shares that we are required to redeem at a specified or determinable date are
classified as liabilities.”
Note
1. Summary of Significant Accounting Policies
General
12.
Please
revise to disclose your accounting policy related to your advances
to
associated companies.
Response
We
propose to include disclosure along the following lines as part of our Summary
of Significant Accounting Policies in future filings:
“Other
Receivables
The
carrying amounts for certain receivables reported as “Other Receivables”
(comprising nonfinancing customer receivables, accrued investment income,
amounts due from GE, amounts due under operating leases, receivables due on
sale
of securities and various sundry items) as well as advances to associated
companies reported as “Other Assets” are net of an allowance for losses that
represents our best estimate of probable losses inherent in such assets.
Advances to associated companies are also adjusted to record losses that exceed
our related investments.”
Revenues
from Services (Earned Income), page 50
13.
Please
revise to disclose how you consider the following when i